A banker cannot exercise his right of set off against a debt owed to him by a customer after the customer has assigned the money in his account to a third party and the banker has been notified of the assignment.

ORDER :- This is an application by the Official Liquidators of the Hanuman Bank Ltd., for a direction to the respondents to pay a sum of Rs. 3759-10-9 with interest thereon at sis per cent per annum from 30-7-1949.

2. The case of the applicants is this. On 20-8-1946 Rathnaswami Nadar, since deceased, applied to the Kumbakonam branch of the Hanuman Bank Ltd., for overdraft facilities to the extent of Rs. 15,000. Vide Ex. P. 1. As collateral security Rathnaswami Nadar deposited with the Hanuman Bank Ltd., Fixed Deposit receipt No. 2 dated 15-6-1946 for a sum of Rs. 3,000 standing in the name of his son Shanmuga Nadar with a firm of bankers called K.K.D. and V.B.K. and Co.

Along with the receipt Shanmugha Nadar gave a letter to the Hanuman Bank authorising them to collect on maturity the money covered by the fixed deposit receipt and to credit the proceeds to the overdraft account. Vide Ex. P. 2. At the same time a letter Ex. P. 3, addressed by Shanmugha Nadar to the K.K.D. and V.B.K. and Co. was handed over to the Hanuman Bank by which the company was asked to pay the proceeds of the fixed deposit receipt with interest thereon to the Hanuman Bank Ltd. On 4-9-1946 the Kumbakonam branch of the Hanuman Bank Ltd. wrote to the K.K.D. and V.B.K. and company intimating them about the act of this pledge.

3. The fixed deposit matured on 15-6-1947. The following day P.W. 1 who was then the agent of the Kumbakonam branch, sent P.W. 2, an employee of the Hanuman Bank Ltd. to the K.K.D. and V.B.K. and Company with the receipt for payment. The agent of the K.K.D. and V.B.K. and Company told him that payment would be made after hearing from the parties, but he did not commit himself to anything in writing.

On 17-6-1947, P.W. 2, went again and asked for payment. He was then told that the money payable on the fixed deposit receipt had been adjusted towards sums which Shanmugha Nadar owed to the company. Subsequently notices passed between the parties and the Official Liquidators filed a suit for that amount in the court of the Subordinate Judge of Kumbakonam.

4. In the suit the sons of Rathnaswami Nadar were impleaded as defendants 3 to 6. The K.K.D. and V.B.K. and company represented by its partners were impleaded as seventh defendant, subsequently, by reason of the Banking Companies Act the proceedings were brought over to this court.

5. Respondents 1 to 6 filed a counter, but they did not appear at the subsequent stages of the proceedings. The real contest was by the K.K.D. and V.B.K. and company, and, their case is this. Ratnaswami Nadar and his sons had dealings with their firm and large sums were due from them to the firm.

Shanmuglia Nadar had no doubt placed a sum of Rs. 3,000 in fixed deposit with them, but, in the usual course of business, that amount was adjusted and set off against the amounts due by Rathnaswami Nadar and his sons. Even after the adjustment large amounts were due from the family of Rathnaswami Nadar, and, to recover them a suit was filed by the firm and a decree was obtained for over Rs. 26,000.

It is not true to say that the K.K.D. and V.B.K. and company was informed that the fixed deposit receipt had been given to the Hanuman Bank Ltd., by way of security or assignment. Only on the evening of 17-6-1947 did the company know that the Hanuman Bank Ltd., had any claim on the money that had been placed in fixed deposit, when payment was demanded by one Kalyanam Aiyar, a godown keeper of Hanuman Bank Ltd.

Upto that moment the company had no intimation of the claims of the Hanuman Bank Ltd., and when the demand was made the Hanuman Bank Ltd., was informed that the fixed deposit amount had been adjusted.

6. The oral evidence in this case may be briefly referred to. P.W. 1 Swaminath Aiyar was the agent of the Kumbakonam branch of the Hanuman Bank from 1938 to 1947 when the bank suspended payment. He proved Ex. P. 1, the application of Rathnaswami Nadar for overdraft facilities and Exs. P. 1 and P. 3 the letters which Shanmugh